Will ACA’s Uncompensated Care Payment Reductions be Made Permanent?

Among the proposals that the budget committee is rumored to be considering to replace a small part of the sequester is an extension of a reduction in Medicaid payments to hospitals that serve a high number of low-income patients to help offset uncompensated care costs. First passed as part of the Affordable Care Act (ACA) through fiscal year 2020 (which not coincidentally goes just through the end of the 10-year budget window used by the Congressional Budget Office used to judge the deficit impact of the bill), these reductions have been extended several times, most recently in the fiscal cliff deal, and are now scheduled to expire after 2022. If the conference committee includes this policy, it should extend the reductions permanently instead of repeatedly using short-term extensions to the end of the current CBO budget window to pay for new short-term spending.

 

Called Disproportionate Share Hospital (DSH) payments, both Medicare and Medicaid make additional payments to hospitals that treat a disproportionate share of low-income patients. Along with other government programs, these payments are intended to help compensate those hospitals for having more uninsured patients who may not pay their medical bills and more patients on Medicaid, which generally pays lower rates than Medicare and private insurance. Without public assistance, hospitals would get stuck with the bill for this uncompensated care, which reached $57.4 billion in 2008, according to the Urban Institute. In 2012, Medicare paid $12 billion through DSH payments and Medicaid paid $11 billion.

 

Due to the coverage expansions in the Affordable Care Act, however, projections show that the amount of uncompensated care will drop dramatically. For instance, the RAND Corporation estimated that uncompensated care nationally would decrease by $32 billion in 2016 alone due to the effects of the health care law. Therefore, with fewer payments needed to compensate hospitals, the ACA reduced Medicare DSH payments by $22 billion over 10 years and Medicaid DSH payments by $14 billion.